Petronet

Summary of Proposed Investment

This Summary of Proposed Investment is prepared and distributed to the public in advance of the IFC Board of Directors’ consideration of the proposed transaction. Its purpose is to enhance the transparency of IFC’s activities, and this document should not be construed as presuming the outcome of the Board decision. Board dates are estimates only.

Project number	24902
Company name	Petronet LNG Limited
Country	India
Sector	Utilities
Environmental category	B
Department	Infrastructure
Status	Pending Disbursement

Date SPI disclosed	April 4, 2007
Projected board date	May 10, 2007
Date revised SPI disclosed	May 4, 2007
Previous Events	Signed: June 23, 2007 Approved: May 31, 2007

View Environmental & Social Review Summary (ESRS), click here

Overview

Sponsor/Cost/Location

Development Impact

Contacts

Attachments

Project description

Petronet LNG Limited (PLL or the company) was established in 1998 to import liquefied natural gas (LNG), build and operate the related terminals and regasification facilities, and sell natural gas to distribution companies to meet India’s rapidly-growing energy needs. PLL currently has one 5 MMTPA operational LNG terminal and regasification facility (the Terminal) at Dahej, Gujarat, India, which was commissioned in April 2004. Regasified LNG (RLNG) from the Terminal is sold to Gas Authority of India Limited (GAIL), Indian Oil Corporation (IOC) and Bharat Petroleum Corporation Limited (BPCL) (the Offtakers), which is then sold by the Offtakers to end-consumers (mainly comprising power producers, fertilizer manufacturers and industrial units) in the region. The Terminal is connected to two main high pressure gas transmission networks currently in operation, the Hazira-Bijapur-Jagdishpur (HBJ) gas pipeline owned by GAIL and the Gujarat Gas Grid owned by Gujarat State Petronet Limited (GSPL) and connected via GAIL pipeline near PLL terminal. The work related to direct connection of GSPL line with PLL’s facility is underway. RLNG is transported through these networks under gas transportation agreements entered into between the Offtakers and network owners.

- PLL plans to:

- construct an additional regasification line, with its associated LNG storage tanks and if required a second jetty, to expand the capacity of the existing terminal at Dahej from the present 5 MMTPA to 10 MMTPA; and
- construct a greenfield 2.5 MMTPA LNG terminal (with provision for capacity expansion to 5 MMTPA) within Cochin Port area, at Kochi, in Kerala, both in India.

The project involves:

- at Dahej, installation of additional facilities within the existing terminal premises including 2 x 160,000 m3 gross capacity LNG storage tanks; 8 shell and tube vaporizers (STVs);
- 2 submerged combustion vaporizers (SCVs);
- 2 x 7.6 MW (ISO RATING) gas turbine generators (GTGs); and
- possibly a 5th 160,000 m3 gross capacity LNG storage tank and a second jetty (including a second LNG unloading system) if required, with doubling of the LNG tanker calls at the Dahej terminal from the present 80 tankers per year to 160 tankers per year; and
- at Kochi, construction of: LNG unloading jetty; dredging of basin;
- LNG unloading facilities including arms, pipelines and trestle for the pipeline;
- 2 x 155,000 m3 LNG storage tanks with provision for 3rd tank;
- LNG re-gasification system (2.5 mtpa capacity);
- plant utilities including 3 x 8 MW open cycle gas turbine, 6-7 MW grid electricity system, fresh water system, domestic and process waste water treatment system, compressed air, nitrogen and fire fighting system.

The principal associated facility, on account of the project, is the proposed RLNG transmission line from the LNG terminal to Coimbatore and Mangalore in Tamil Nadu and Karnataka, respectively, which will be laid, operated and maintained by GAIL.

The company has approached IFC for a corporate loan to fund its expansion program.

Project sponsor and major shareholders of project company

PLL has been publicly listed since 2004, and its shareholders are the four leading public sector oil/gas companies, viz. Bharat Petroleum Corporation Ltd. (BPCL), Gas Authority of India Ltd. (GAIL), Indian Oil Corporation Ltd. (IOC) and Oil & Natural Gas Corporation Ltd. (ONGC), which together own 50% of the capital, Gaz de France (GdF) with 10%, the Asian Development Bank (ADB) with 5.2%, and the balance with the public.

PLL has been publicly listed since 2004, and its shareholders are the four leading public sector oil/gas companies, viz. Bharat Petroleum Corporation Ltd. (BPCL), Gas Authority of India Ltd. (GAIL), Indian Oil Corporation Ltd. (IOC) and Oil & Natural Gas Corporation Ltd. (ONGC), which together own 50% of the capital, Gaz de France (GdF) with 10%, the Asian Development Bank (ADB) with 5.2%, and the balance with the public.

BPCL, GAIL, IOC and ONGC are all publicly-listed, Government of India majority owned, Public Sector Undertakings (PSUs):

- BPCL is engaged in crude oil refining and the storage, distribution and marketing of petroleum products and petrochemicals. BPCL’s total revenues during 2005-06 were $17.4 billion. The net worth of the company at end FY06 was $1.8 billion.
- GAIL is the largest gas transmission and marketing company in the India. Its activities include gas marketing, transmission and distribution through pipelines, retailing of natural gas, natural gas processing for production and marketing of LPG, liquid hydrocarbons and petrochemicals. GAIL’s total revenues during 2005-06 were $3.3 billion. The net worth of the company at end FY06 was $2.2 billion.
- IOC is engaged in crude oil refining and the storage, distribution and marketing of petroleum products. IOC owns and operates 10 of the country’s 18 refineries with a combined refining capacity of 54 MMTPA. IOC’s total revenues during 2005-06 were $41.4 billion. The net worth of the company at end FY06 was $6.9 billion.
- ONGC is engaged mainly in exploration, development and production of crude oil, natural gas, and some products such as NGLs, C2-C3, Naphtha and Kerosene. ONGC’s total revenues during 2005-06 were US$18.3. The net worth of the company at end FY06 was $12.7 billion.
- GdF - Gaz de France is one of Europe's major energy players. The group produces, transports, distributes and sells gas, electricity and services to 13.8 million customers. With over 40 years of experience in the LNG business, GDF operates in all links of the LNG chain, viz. liquefaction, transport and regasification; it is Europe's�second-largest player in LNG, and the world's fifth largest importer. In 2006, the Group’s consolidated revenues were Euro 27.6 billion. The net worth of the company at end FY06 was Euro 16.7 billion.

Total project cost and amount and nature of IFC's investment

Please note that this section has been modified on May 4, 2007 to reflect IFC’s potential greater involvement in PLL’s capital structure, as a result of ongoing discussions with the company.

The total cost of the project is estimated at $900 million. IFC will invest up to $200 million equivalent, for its own account, and is also considering an up-to $150 million B-Loan.

Location of project and description of site

- Dahej Terminal:

The site is in the Gulf of Khambhat, Bharuch District, in the state of Gujarat on the west coast of India. The site is about 45 kilometers (km) from Bharuch, the nearest major town. The terminal area is at 21� 41’ latitude and 72� 32’ longitude. The (existing) site is part of a larger industrial complex, with three operational jetties, and a fourth under construction, to serve nearby industries, and is not environmentally sensitive. The site, that occupies approximately 50 hectares (ha), is north of the confluence of the Narmada River with the Gulf of Khambat. It already has the infrastructure necessary for heavy industries (including transportation), and the project will use many existing facilities. A few small villages surround the site: Ambheta, Dahej, Jageshwar, Lakhigam, and Lurare.

- Kochi Terminal:

The project site is located at Cochin Port situated on south-west coast of India, about 930 km south of Mumbai and 320 km north of Kanyakumari. Cochin Port, located on Willingdon Island (latitude 9O 58’ north and longitude 76O 14’ east), The Kochi port is one of the major natural harbors on the west coast of India is an all weather port. The port already has 16 berths including 3 oil jetties and is spread over a vast area (1940 acres). The approach channel, 200 meter wide and about 9 kms. long, will be dredged to 17 meter depth (below chart datum). The inner channel, 400 meter wide and 11.9 meter deep, is designed to accommodate 87,500 tonne DWT vessels at the Kochi oil terminal in Ernakulam channel.

The LNG Terminal will be constructed on Puthuvypeen Island, located on left entrance of Cochin port, Fort Cochin being on the right. Vypeen is a peninsula on the northern side of the entrance channel to Cochin Port. During the recent past, there has been significant accretion on the northern side of the entrance channel and west of Vypeen resulting in a wide area of virgin land of about 250 hectares being available. This area has been named as Puthuvypeen. This area is vacant and for the most part away from habitation. Accordingly Cochin port has earmarked this area for development of supplemental port terminal, proposed to be developed as a Special Economic Zone. The proposed LNG terminal is located in this area, on 32.4 ha of accreted land.

Anticipated development impact of the project

PLL is the central player in the Indian LNG scene, already supplying today approximately 20% of the natural gas consumed in India. Through the project, PLL will increase this contribution to 10 MMTPA by 2011 which could provide possibly 25% of India’s gas requirements by that time.

These features impart unusually significant development impacts to the IFC project that will be achieved through:

- increasing the supply of LNG as premium fuel in the India’s energy mix that will stimulate the rationalization of inter-fuels pricing;
- supporting local sponsors to consolidate a key new technology that will provide a model for other LNG terminals to be developed in future;
- substitution of a wide range of industrial fossil fuels (naphtha, fuel oil, coal) by LNG that will result in a reduction in harmful environmental and GHG emissions;
- reducing energy costs for industry through displacement of imported petroleum fuels that are more expensive that LNG;
- contributing to the introduction of piped natural gas in several cities where residential consumers will benefit from increased convenience of piped gas over bottled LPG;
- contributing to the introduction of compressed natural gas in several cities that will replace conventional automotive fuels so reducing in-city pollution and providing financial savings for consumers;
- reducing the level of unserved energy in India and contributing to economic growth and government tax revenues;
- creating locally filled jobs during construction and permanent jobs during the operational phase.

IFC's expected development contribution

The project involves an IFC loan to Petronet where the loan proceeds will be directed towards the expansion of Dahej Terminal and the construction of the Kochi Terminal. One of the key focus areas for IFC is to encourage private sector involvement in the provision and financing of infrastructure. IFC’s support to such a project will result in moving PLL further on the path of becoming a model public-private partnership that is professionally managed and commercially operated. IFC’s role in the proposed project also involves:

- provision of long-term fixed rate local currency financing which is not available from the local banks (which mainly provide floating rate loans);
- providing further international credibility to the company through the participation of a second multilateral institution which will be in a position to help the company in their dealings with the LNG Suppliers and LNG Tanker owners.

Environmental and social issues - Category B

This is a category B project according to IFC’s environmental and social review procedure because a limited number of specific social and environmental impacts may result, which can be avoided or mitigated by adhering to generally recognized performance standards, guidelines or design criteria. The following potential environment, health and safety and social aspects of the project were analyzed:

- environment and social assessment and corporate environmental, social, and health and safety management systems;
- community consultation, disclosure and engagement;
- labor and working conditions including management of occupational health and safety;
- pollution prevention and abatement (including management of resources including energy, water, hazardous and other materials;
- management of emissions, discharges, hazardous and other wastes;
- biodiversity conservation including management of marine impacts;
- management of community environment, health and safety impacts during construction and operation; and land acquisition and involuntary resettlement on account of the project.

A summary discussion on the EHSS aspects of relevance to the project including the company’s plans to address these impacts, has been provided in the Environmental and Social Review Summary (ESRS) prepared by IFC and publicly disclosed at IFC’s website (also The World Bank Infoshop).

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